Freshworks (FRSH +4.08%), an enterprise software company that has eagerly embraced artificial intelligence to power its solutions, posted a healthy gain on the stock market on Tuesday. That was mostly due to its inclusion in a prominent small-cap equity index.
Presence in a big small-cap index
After market close on Monday, S&P Dow Jones Indices announced that Freshworks is to replace healthcare stock BioLife Solutions as a component of the S&P SmallCap 600 index. BioLife is being acquired by peer company Repligen, which happens to be a component of the S&P MidCap 400 index.
Image source: Getty Images.
The switch will be effective prior to market open this Thursday.
The index Freshworks is joining is one of a set of high-profile market gauges managed by S&P Dow Jones Indices. Arguably, the most influential and closely followed of these is the broad S&P 500 index.
NASDAQ: FRSH
Key Data Points
Same as it ever was
In situations like this, it's always important for investors to bear in mind that index ascension has little to no effect on a company's operations or its financials. It does, however, make it a near-instant target for the many index funds currently popular with investors, as these are required to hold only component stocks of the S&P 500 index, S&P SmallCap 600 index, etc.
The "index effect" rarely lasts long, and I doubt this one will stretch very far. While becoming part of this well-known small-cap lineup is an achievement for Freshworks, this news alone shouldn't push investors into or out of the company's stock.
